146. Telegram 51 to Tegucigalpa, September 111

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Seek meetings with President Villeda Morales and with Foreign Minister Alvarado Puerto at earliest possible time and state you are under instructions to convey following US expressions of concern over implications for foreign investment, public and private, in Honduras agricultural development as a result recently passed agrarian reform law.

1. Defining expropriation procedure as “administrative” and thus precluding judicial review creates uncertainty as to fields of application of law, particularly in view of experiences under unclear legislation under Castro. In normal administration of legislation as extensive as current law, cases of varying interpretation arise frequently. Foreign investors hold recourse to courts in such cases as important factor of “investor confidence”.

2. Compensation scheme contemplated would raise most serious issues under new section 620(e) of AID Act, which requires President to suspend assistance where country expropriates US citizens’ property and fails within reasonable time to take steps to discharge its obligations under international law including payment of fair compensation. [Facsimile Page 2] In this instance, agrarian reform law apparently contemplates compensation which might not satisfy international legal standards in terms either of its promptness, its adequacy or its effectiveness, since bonds would be payable only in 20 years, standards of valuation not clear and bonds and interest obligations not denominated in dollars. AID act leave US President no repeat no discretion regarding aid suspension in these circumstances. FYI great care must be taken to avoid definitive interpretation agrarian law at this stage under AID act until reviewed AID/W and Legal Adviser end FYI.

3. View restricted finances GOH and weak organization Agrarian Reform Institute, new law effectively inhibits all credits for agricultural development and thereby obviates sound Honduran agricultural development which main point Alliance for Progress and AID programs.

We realize and understand political situation facing Villeda Morales in this election year. However, in view of detrimental effect law [Typeset Page 357] could have on ability US public and private sources assist Honduran development, as well as impact on current US congressional consideration of AID appropriations we suggest he veto measures as presented. As we interpret article 246 of constitution President may cite his opinion unconstitutional provisions or articles he deems in conflict with constitution and request Supreme Court decision. Honduran National Association of Industries study of June 1962 lists numerous conflicts which Villeda might note: Article 11 contravenes 156 of constitution; article 15 contravenes 242; 32, 40 and 41 contravene 67, 78 and 156; 48, 49, 50, 51, 52 and 164 contravene 78, 156 and 226; 211 and 212 contravene 66.

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If Villeda cannot veto or refer to Supreme Court, or measure has already been signed, it appears minimum he could do to restore balance to situation is announce publicly his intention seek early legislation amend certain portions in conflict or which require further clarification.

  1. Instructions for meeting with President and Foreign Minister to convey U.S. concern over implications for foreign investment, public and private, in Honduras agricultural development as result new agrarian reform law. Confidential. 3 pp. DOS, CF, 815.16/9–1062.